Contract Law: Breach of Contract - PowerPoint Presentation

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Contract Law:Breach of Contract

Douglas Wilhelm Harder,

M.Math

. LEL

Department of Electrical and Computer Engineering

University of Waterloo

Waterloo, Ontario, Canada

ece.uwaterloo.ca

dwharder@alumni.uwaterloo.ca

© 2013 by Douglas Wilhelm Harder. Some rights reserved.Slide2

Outline

An introduction to the engineering profession, including:

Standards and safetyLaw: Charter of Rights and Freedoms, contracts, torts, negligent malpractice, forms of carrying on businessIntellectual property (patents, trade marks, copyrights and industrial designs)Professional practiceProfessional Engineers ActProfessional misconduct and sexual harassmentAlternative dispute resolutionLabour Relations and Employment LawEnvironmental Law

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Breach of ContractSlide3

Definitions

Terms of a contract that require performance on a party are said to be

obligations

Failure to perform an obligation is said to be a breach of the contract The party that breaches the contract is said to be the defaulting party Any other parties to the contract are said to be innocent parties

Breach of Contract

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Types of Breaches

An essential obligation of a contract is said to be a

condition

of the contract Other obligations non-essential to the contract are said to be warrantiesBreach of Contract4Slide5

Discharge by Performance

The innocent parties may seek

remedies

for the breach The breach of a warranty may allow the innocent parties to sue for damages or specific performanceSuch a breach is said to be an non-material breach If, however, it is a breach of a condition, the injured parties may be able to, in addition, consider the contract discharged by the breachSuch a breach is said to be a material breach

Breach of Contract

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Non-material Breach

Consider the case of

Pigott

Construction Co. Ltd. v W.J. Crowe Ltd., 1963 where a subcontractor claimed that the contractor had breached terms in a contract:The terms in question requested expeditious work on the part of the contractor and to provide heat during winterWork had not begun by January 1st, 1957 The case went to court:The plaintiff argued that the contract should be dischargedThe court said, however, that the breaches would not have prevented the subcontractor from substantial performance on the part of his obligations and thus the breaches are grounds for damages, but not for discharge of contract

Breach of Contract

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Non-material Breach

In the decision:

“A breach of contract is a cause of discharge only if its effect is to render it purposeless for the innocent party to proceed further with performance. Further performance is rendered purposeless if one party either shows an intention no longer to be bound by the contract or breaks a stipulation of major importance to the contract...

“It may, indeed, be said in general that any breach which prevents substantial performance is a cause of discharge. Whether performance is substantially prevented or only partially affect is, of course, a question that depends upon the circumstances of each case.”Breach of Contract

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Non-material Breach

In

Jacob &

Youngs, Inc. v. Kent, 1921, the contractor used a different brand of pipe than was specified in the contractThe owner claimed a material breach and refused to make the last paymentThe owner wanted to sue for the cost of removing the wrong piping and installing new pipingThe court found that the breach was non-material, as the brand did not affect the value of the house and thus, the owner was only able to sue for the difference in the cost of the pipes—in this case, $0Breach of Contract

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Engineers

How does one determine when one has a material breach versus one that is not material?

Due to the difficulty of determining this point, very often construction contracts will contain provisions for terminating a contract if a professional engineer has determined that a contractor’s performance was inadequate

Breach of Contract9Slide10

Repudiation

When parties, either through explicit communications or through failure to perform, indicate that they will not perform obligations, they are said to have repudiated the contract

The party repudiating the contract is said to be the

defaulting partyIf there is no material change, it is possible for the defaulting party to retract the repudiation and continue with its contractual obligationsNon-defaulting parties have two options:Ignore the breach, or assume the contract is dischargedBreach of Contract

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Repudiation

If non-defaulting parties wish to consider the contract discharged, they must communicate this to the defaulting party “with reasonable dispatch”

The non-defaulting parties may then sue for damages

Breach of Contract11Slide12

Remedies

The non-defaulting party may be compensated for the breach through a number of possible remedies:

Damages

for any injuryQuantum meruit remediesSpecific performanceInjunctionsBreach of Contract

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Damages

The term

damages

refers to monetary compensation for any losses that affect the innocent partyThe amount of damages is determined by a courtWhat can the injured party claim as damages?Breach of Contract13Slide14

Damages

In

Hadley v

Baxendale, 1854, the plaintiff operated a mill and required the defendants to transport a broken crankshaft for repairsThrough negligence on the part of the carriers, the deliver was delayedThe crankshaft was essential to the operation of the mill, but this was not impressed upon the defendants at the time the contract was establishedThe plaintiff was seeking damages for lost productivityBreach of Contract

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Damages

The justice indicated

“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such a breach of contract itself, or such as may be reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”

The defendants must be told of the consequences if the plaintiffs seek damages as a result of any breachBreach of Contract

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Direct and Indirect Damages

Damages may be a direct consequence of the breach:

Any immediate costs that the injured party must incur to complete the terms of the contract

This may include any additional costs, over-and-above the costs of the current contract to find another party to complete the terms of the contractBreach of Contract16Slide17

Direct and Indirect Damages

Damages may also result indirectly from the breach:

This includes any other losses that are a consequence of the contract obligations not being performed

In the case of Hadley v Baxendale, the shutdown of the mill was an indirect damage resulting from the breach Many contracting parties will often attempt to limit damages to those that directly result from any breach “In no event whatsoever will the manufacturer be responsible for any indirect or consequential damages howsoever caused.”

Breach of Contract

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Duty to Mitigate

When a party is injured as a result of a breach of contract, the party must still take steps to prevent further damage

In a construction that is partially completed, the injured party would have to, for example, guard against possible water damage

The courts will consider compensating the party for any costs incurred in protecting the structure, but they will not consider water damage to the structure if the injured party took no reasonable steps to protect itBreach of Contract18Slide19

Penalty Clauses

If a contract includes a

penalty clause

, that is, one indicating damages to be paid in the event of a breach must be commensurate with the actual damageSuch clauses that are purely punitive will not be upheld by courts Such clauses must reasonable consider actual losses that will be incurred as a result of any breachBreach of Contract19Slide20

Penalty Clauses

Consider a subcontracted software system that must be installed by a certain date, otherwise, the contracting party will be in breach of its contract

The

liquidated damages are those that the contractor will incur if the contract is breachIf a breach of the contract was $1000 per day, it would be unreasonable to have a penalty clause that indicates $5000 per dayThe court would not lower the damages to more reasonable levels, but instead simply void the termBreach of Contract

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Quantum Meruit

Suppose prior to a breach of a contract, performance had occurred, but the contract did not specify the benefits that would result from the performance

In the case where the breach is the result of the party that is to pay

Breach of Contract21Slide22

Substantial Compliance

When performance has completed the essential objective of a contract, the party completing those obligations will be determined to have provided substantial compliance to the contract

, even though minor obligations have not been metThe completion of E5 was satisfied, even though the developer never bothered to correctly code the light switches consistentlyIt does not appear to be worth the effort of the University of Waterloo to require the contractor to fix such minor detailsBreach of Contract

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Specific Performance

In some cases, the courts may require that the party breaching the contract must, never-the-less, satisfy specific terms within the contract, rather than compensate the injured party

If the performance requires supervision, it will not be specifiedOften applied if the contract involves the transfer of an item that is rare or uniqueThe failure to provide a vehicle upon entering into a contract to sell it will be seen to be a breach of contractIf it is a 2015 Volkswagen Golf, the injured party could be compensated to all him or her to purchase a similar vehicle elsewhereIf it is a 1967 Ford Mustang, it is unlikely that a similar vehicle can easily be found, and thus, the court may require that the vehicle be transferred

Breach of Contract

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Injunction

Suppose a contract has a no-compete clause that is reasonable, but a former employee, never-the-less, finds employment in breach of the contract

The injured party could seek an injunction barring the former employee from engaging in the specified tradeBreach of Contract24Slide25

References

[1] D.L. Marston, Law for Professional Engineers, 4th Ed., McGraw Hill, 2008.

[2] Julie Vale, ECE 290 Course Notes, 2011.

[3] Wikipedia, http://www.wikipedia.org/ These course slides are provided for the ECE 290 class. The material in it reflects Douglas Harder’s best judgment in light of the information available to him at the time of preparation. Any reliance on these course slides by any party for any other purpose are the responsibility of such parties. Douglas W. Harder accepts no responsibility for damages, if any, suffered by any party as a result of decisions made or actions based on these course slides for any other purpose than that for which it was intended.

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Breach of Contract